<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
------ ------
COMMISSION FILE NO. 1-12030
STRATOSPHERE CORPORATION
------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 88-0292318
-------- ----------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2000 LAS VEGAS BOULEVARD SOUTH
LAS VEGAS, NEVADA 89104
----------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(702) 382-4446
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
----- -----
INDICATE THE NUMBER OF SHARES OUTSTANDING FOR EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: 58,393,105 AS OF AUGUST 7, 1998
<PAGE> 2
STRATOSPHERE CORPORATION
(DEBTOR-IN-POSSESSION)
FORM 10-Q
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AT JUNE 28, 1998
UNAUDITED AND DECEMBER 28, 1997 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS ENDED JUNE 28, 1998 AND JUNE 29, 1997 (UNAUDITED) 4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX
MONTHS ENDED JUNE 28, 1998 AND JUNE 29, 1997 (UNAUDITED) 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX
MONTHS ENDED JUNE 28, 1998 AND JUNE 29, 1997 (UNAUDITED) 6-7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 8-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 11-15
PART II. OTHER INFORMATION 16
ITEM 1. LEGAL PROCEEDINGS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
2
<PAGE> 3
CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
BALANCE SHEETS (DEBTORS-IN-POSSESSION)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 28, DECEMBER 28,
1998 1997
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 22,911,697 $ 20,326,317
Cash and cash equivalents-restricted 129,750 471,273
Investments-restricted 3,216,250 3,139,469
Accounts receivable, net 2,512,233 2,479,512
Other current assets 5,987,030 5,753,608
- -----------------------------------------------------------------------------------------------------------------------
Total Current Assets 34,756,960 32,170,179
- -----------------------------------------------------------------------------------------------------------------------
Property and Equipment, Net 118,828,663 122,381,979
- -----------------------------------------------------------------------------------------------------------------------
Other Assets:
Deferred financing costs-net 404,920 624,156
Related party receivable-net 401,806 800,000
- -----------------------------------------------------------------------------------------------------------------------
Total Other Assets 806,726 1,424,156
=======================================================================================================================
TOTAL ASSETS $154,392,349 $155,976,314
=======================================================================================================================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable-trade $ 934,783 $ 1,124,425
Current installments of long-term debt 148,017 148,017
Accrued interest 173,096 263,457
Accrued payroll and related expenses 6,453,863 5,778,505
Other accrued expenses 9,250,430 6,156,276
- -----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 16,960,189 13,470,680
- -----------------------------------------------------------------------------------------------------------------------
Long-Term Liabilities:
Long-term note payable-less current installments 185,196 296,033
- -----------------------------------------------------------------------------------------------------------------------
Total Long-Term Liabilities 185,196 296,033
- -----------------------------------------------------------------------------------------------------------------------
Liabilities Subject to Compromise 294,547,098 299,208,988
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 311,692,483 312,975,701
- -----------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Shareholders' Deficit:
Preferred stock, $.01 par value; authorized 10,000,000 shares;
no shares issued and outstanding
Common stock, $.01 par value; authorized 100,000,000 shares;
issued and outstanding 58,393,105
at June 28, 1998 and December 28, 1997 583,931 583,931
Additional paid-in-capital 218,576,069 218,546,069
Accumulated deficit (376,430,134) (376,129,387)
Treasury stock, $.01 par value; 3,000,000 shares
at June 28, 1998 and December 28, 1997 (30,000) -
- -----------------------------------------------------------------------------------------------------------------------
Total Shareholders' Deficit (157,300,134) (156,999,387)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $154,392,349 $155,976,314
=======================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
STATEMENTS OF OPERATIONS (DEBTORS-IN-POSSESSION)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 28, 1998 AND JUNE 29, 1997 (UNAUDITED) 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Casino $ 13,728,340 $ 15,844,639
Hotel 6,329,261 6,079,461
Food and beverage 8,553,913 8,342,389
Tower, retail and other income 7,568,699 7,797,665
- ----------------------------------------------------------------------------------------------------------------
Gross Revenues 36,180,213 38,064,154
Less: Promotional allowances 3,213,944 3,738,586
- ----------------------------------------------------------------------------------------------------------------
NET REVENUES 32,966,269 34,325,568
- ----------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Casino 6,141,958 7,270,383
Hotel 2,068,069 2,252,954
Food and beverage 5,722,434 6,822,978
Other operating expenses 2,726,091 2,861,722
Depreciation and amortization 2,092,860 1,768,501
Selling, general and administrative 11,718,590 13,812,400
- ----------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 30,470,002 34,788,938
- ----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 2,496,267 (463,370)
- ----------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income - -
Interest expense (Contractual Interest for the three months ended
June 28, 1998 estimated at $ 11,363,739) (380,204) (640,644)
Loss on sale of assets (37,274) -
- ----------------------------------------------------------------------------------------------------------------
Total Other Expense, net (417,478) (640,644)
- ----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE REORGANIZATION ITEMS AND INCOME TAXES 2,078,789 (1,104,014)
- ----------------------------------------------------------------------------------------------------------------
REORGANIZATION ITEMS: (3,684,706) (1,253,864)
INCOME (LOSS) BEFORE INCOME TAXES (1,605,917) (2,357,878)
- ----------------------------------------------------------------------------------------------------------------
Provision (Benefit) for Income Taxes - -
- ----------------------------------------------------------------------------------------------------------------
NET LOSS $ (1,605,917) $ (2,357,878)
================================================================================================================
BASIC LOSS PER COMMON SHARE $ (0.03) $ (0.04)
================================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 58,393,105 58,393,105
================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
STATEMENTS OF OPERATIONS (DEBTORS-IN-POSSESSION)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 28, 1998 AND JUNE 29, 1997 (UNAUDITED) 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Casino $ 28,716,590 $ 33,247,625
Hotel 12,286,310 12,509,635
Food and beverage 17,502,899 17,045,682
Tower, retail and other income 14,934,078 15,100,706
- ------------------------------------------------------------------------------------------------------------------
Gross Revenues 73,439,877 77,903,648
Less: Promotional allowances 6,295,690 6,675,350
- ------------------------------------------------------------------------------------------------------------------
NET REVENUES 67,144,187 71,228,298
- ------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Casino 12,891,923 14,722,314
Hotel 4,089,338 4,631,192
Food and beverage 11,571,179 13,633,790
Other operating expenses 5,713,830 5,674,538
Depreciation and amortization 4,031,368 3,795,345
Selling, general and administrative 23,209,996 28,690,241
- ------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 61,507,634 71,147,420
- ------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 5,636,553 80,878
- ------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income - 47,674
Interest expense (Contractual Interest for the six months ended
June 28, 1998 estimated at $ 22,495,841) (845,494) (4,342,844)
Loss on sale of assets (41,571) (1,190)
- ------------------------------------------------------------------------------------------------------------------
Total Other Expense, net (887,065) (4,296,360)
- ------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE REORGANIZATION ITEMS AND INCOME TAXES 4,749,488 (4,215,482)
- ------------------------------------------------------------------------------------------------------------------
REORGANIZATION ITEMS: (5,050,235) (13,348,068)
INCOME (LOSS) BEFORE INCOME TAXES (300,747) (17,563,550)
- ------------------------------------------------------------------------------------------------------------------
Provision (Benefit) for Income Taxes - -
- ------------------------------------------------------------------------------------------------------------------
NET LOSS $ (300,747) $(17,563,550)
==================================================================================================================
BASIC LOSS PER COMMON SHARE $ (0.01) $ (0.30)
==================================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 58,393,105 58,393,105
==================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS (DEBTORS-IN-POSSESSION)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 28, 1998 AND JUNE 29, 1997 (UNAUDITED) 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (300,747) $ (17,563,550)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,237,989 4,149,725
Reorganization Items:
Write-off of debt issuance costs - 11,210,108
Professional Fees 2,000,000 2,500,000
Management Retention Expense 233,125 -
Vegas World Vacation Package Settlement 3,346,793 -
Interest Earned on Accumulated Cash During
Chapter 11 Proceedings (529,683) (362,040)
Provision for doubtful accounts 193,410 420,521
Loss on sale or disposal of assets 41,571 1,190
Changes in operating assets and liabilities:
Accounts receivable 172,063 969,917
Other current assets (233,421) (693,458)
Accounts payable - trade (pre-petition) 141 449,551
Accounts payable - trade (post-petition) (189,642) (315,478)
Other accrued expenses (pre-petition) (10,065) (2,609,857)
Other accrued expenses (post-petition) 1,061,433 4,403,669
----------------------------
Net Cash Provided by Operating Activities Before Reorganization Items 10,022,967 2,560,298
----------------------------
Increases (decreases) to Cash Resulting from Reorganization Items:
Professional fees paid (2,243,460) -
Management Retention Disbursements (706,125) -
Interest Earned on Accumulated Cash During
Chapter 11 Proceedings 529,683 362,040
----------------------------
Net Cash Provided by (Used in) Reorganization Items (2,419,902) 362,040
- ----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,603,065 2,922,338
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in cash and cash equivalents-restricted 341,522 -
Change in investments-restricted (76,781) (60,480)
Change in securities available for sale - 2,000,905
Payments for property and equipment (827,624) (1,410,113)
Change in construction payables - (544,133)
Cash proceeds from sale of property and equipment 308,000 3,427
- ----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (254,883) (10,394)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issuance and deferred financing costs - (6,250)
Payments on long-term debt (110,837) (428,400)
Payments on capital lease obligations subject to compromise (4,636,180) (4,342,180)
Decrease in affiliate payable (15,785) 580,043
- ----------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (4,762,802) (4,196,787)
- ----------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 2,585,380 (1,284,843)
Cash and cash equivalents - beginning of period 20,326,317 22,558,804
- ----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $22,911,697 $ 21,273,961
================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS (DEBTORS-IN-POSSESSION)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 28, 1998 AND JUNE 29, 1997 (UNAUDITED) 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest-net of capitalized interest $ 629,026 $ 1,147,186
Non-Cash Investing and Financing Activities:
Increase in land and building from
reduction in notes receivable from stockholder $ 350,000 $ -
</TABLE>
See notes to condensed consolidated financial statements.
7
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED STRATOSPHERE CORPORATION AND SUBSIDIARIES
FINANCIAL STATEMENTS (DEBTORS-IN-POSSESSION)
- --------------------------------------------------------------------------------
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
The accompanying condensed consolidated financial statements present the
financial position, results of operations and cash flows of Stratosphere
Corporation and its wholly-owned subsidiaries, Stratosphere Gaming Corp.,
Stratosphere Land Corporation, Stratosphere Advertising Agency and 2000 Las
Vegas Boulevard Retail Corporation (collectively the "Company"). The Company
operates an integrated casino, hotel and entertainment facility and a 1,149
foot, free-standing observation tower located in Las Vegas, Nevada.
On January 27, 1997 ("Petition Date"), Stratosphere Corporation and its
wholly-owned subsidiary Stratosphere Gaming Corp. ("SGC" and collectively with
Stratosphere Corporation, the "Debtors") filed voluntary petitions for Chapter
11 Reorganization pursuant to the United States Bankruptcy Code. As of that
date, the United States Bankruptcy Court for the District of Nevada ("Bankruptcy
Court") assumed jurisdiction over the assets of Stratosphere Corporation and
SGC. Stratosphere Corporation and SGC are acting as debtors-in-possession on
behalf of their respective bankrupt estates, and are authorized as such to
operate their business subject to Bankruptcy Court supervision. The condensed
consolidated financial statements have been prepared assuming that the Company
will continue as a going concern. These condensed consolidated financial
statements do not include any adjustments that might result if the Company is
unable to successfully emerge from bankruptcy and continue as a going concern.
PRINCIPLES OF PRESENTATION
The condensed consolidated financial statements have been prepared in accordance
with the accounting policies described in the Company's 1997 Annual Report on
Form 10-K. Although the Company believes that the disclosures are adequate to
make the information presented not misleading, it is suggested that these
financial statements be read in conjunction with the notes to the consolidated
financial statements which appear in that report.
In addition, as a result of the restructuring (see Note 2), the Company has
implemented the guidance provided by the American Institute of Certified Public
Accountants ("AICPA") Statement of Position 90-7 "Financial Reporting By
Entities In Reorganization Under The Bankruptcy Code" in the preparation of the
accompanying June 28, 1998, condensed consolidated financial statements. The
Company has not separately reported financial statements of non-debtor
subsidiaries as it has determined such disclosure is not material to the
condensed consolidated financial statements.
In the opinion of management, the accompanying condensed consolidated financial
statements include all adjustments (consisting only of a normal recurring
nature) which are necessary for a fair presentation of the results for the
interim periods presented. Certain information and footnote disclosures normally
included in financial statements have been condensed or omitted pursuant to such
rules and regulations of the Securities and Exchange Commission. Interim results
are not necessarily indicative of results to be expected for any future interim
period or for the entire fiscal year. Significant intercompany accounts and
transactions have been eliminated.
INVENTORIES
Inventories consisting primarily of food and beverage, retail and operating
supplies are stated at the lower of cost or market. Cost is determined using the
first-in, first-out method. Inventories totaled $2.7 million and $2.9 million as
of June 28, 1998 and June 29, 1997, respectively.
8
<PAGE> 9
EARNINGS PER SHARE ("EPS")
The Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS
128") in 1997. However, there is no effect on the EPS calculation as all Stock
Options were in excess of the average market share price. On May 15, 1998, the
Bankruptcy Court confirmed the Restated Second Amended Plan of Reorganization
filed by the Debtors (the "Restated Second Amended Plan"). The Restated Second
Amended Plan will become effective upon the occurrence of certain events (see
Note 2). Upon the Restated Second Amended Plan becoming effective, all existing
equity interests (including Common Stock, options and warrants) will be canceled
and the holders of such equity interests will receive nothing.
RECLASSIFICATIONS
Certain amounts in the 1997 condensed consolidated financial statements have
been reclassified to conform with the 1998 presentation. These reclassifications
had no effect on the Company's net loss.
(2) RESTRUCTURING
On May 15, 1998, the Bankruptcy Court entered an order (the "Confirmation
Order") confirming the Restated Second Amended Plan. The Restated Second Amended
Plan will not become effective until receipt of all regulatory approvals,
including approval from the Nevada State Gaming authorities, which is expected
to occur by September 30, 1998. Among other things, under the Restated Second
Amended Plan, the secured portion of the First Mortgage Notes (estimated at $120
million) will be converted into one hundred percent (100%) of the equity of
reorganized Stratosphere Corporation, and all currently outstanding Common Stock
of the Company and all other existing equity interests (including stock options
and warrants) of the Company will be canceled. The remaining portion of the
First Mortgage Notes claim (approximately $104 million) will be treated as a
general unsecured claim. In addition to the deficiency claim arising from the
First Mortgage Notes, the general unsecured class of claims would include the
balance of the note due Grand Casinos, Inc. (approximately $52.4 million) and
other general unsecured claims. The Restated Second Amended Plan provides for
the general unsecured class of claims to share pro ratably in the distribution
of approximately $6.0 million in full settlement of their related claims. In
addition, the Restated Second Amended Plan assumes that the reorganized
Stratosphere Corporation will continue to make payments pursuant to the Debtors'
pre-petition capital lease and operating lease agreements.
On March 27, 1998, the Company became a party to a global settlement agreement
("Settlement Agreement") with the holders of the Vegas World Vacation Packages
("Package Holders"). The Settlement Agreement required the approvals of the
Bankruptcy Court and Nevada State District Court. Upon obtaining the necessary
approvals, the Settlement Agreement became effective on June 23, 1998. Pursuant
to the terms of the Settlement Agreement, the Company will provide room nights,
tower elevations and beverages (at the casino bars) to the Package Holders
identified in Exhibit A to the Settlement Agreement. The Company estimates the
total cost of providing such services to be approximately $3.3 million. The
Company received from Bob Stupak the Deed to the Stupak Center (estimated fair
market value of $350,000), $.4 million of cash and the remaining three million
shares of Common Stock held in the escrow account previously established by Bob
Stupak and will write-off the Stupak receivable of $3.9 million ($800,000 of
which was unreserved). The Company has not attributed any value to the treasury
stock received as it will be canceled upon the Restated Second Amended Plan
becoming effective. The net estimated cost of the Settlement Agreement of $3.3
million is reflected as a Reorganization Item in the accompanying Condensed
Consolidated Statement of Operations for the period ending June 28, 1998.
The Company has implemented the guidance provided by AICPA Statement of Position
90-7 "Financial Reporting By Entities In Reorganization Under The Bankruptcy
Code" and, accordingly, expenses reorganization items as incurred (see Note 4).
These items include professional fees, management retention compensation,
interest income earned and any other costs and expenses deemed to have resulted
from reorganization efforts since the Petition Date. All professional fees
require approval by the Bankruptcy Court prior to the Company making payment in
respect thereof. The Company will apply fresh-start reporting upon the Restated
Second Amended Plan becoming effective which is anticipated to occur prior to
September 30, 1998.
9
<PAGE> 10
Under Chapter 11 Reorganization, actions to enforce claims against the Debtors
or Debtors' property are stayed pending further order of the Bankruptcy Court if
those claims arose, or are based on events that occurred, on or before the
Petition Date, and such claims can not be paid or restructured prior to the
conclusion of the Chapter 11 proceedings. Other liabilities may arise or be
subject to compromise as a result of rejection of executory contracts, including
leases, or the Bankruptcy Court's resolution of claims for contingencies and
other disputed amounts. Liabilities Subject to Compromise, included in the
accompanying condensed consolidated balance sheets, represent the Company's
estimate of the Debtors' pre-petition liabilities which are subject to
compromise (see Note 3).
(3) LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise under reorganization proceedings consist of
the following as of June 28, 1998 (in thousands):
<TABLE>
<CAPTION>
1998
----
<S> <C>
Accounts payable trade $ 348
Accrued payroll and related expenses 58
Affiliate payable 2,408
Other accrued expenses 4,751
Capital lease obligations 13,321
14 1/4% first mortgage notes - including accrued interest through 1/27/97 223,661
Note payable to affiliate 50,000
---------
$ 294,547
=========
</TABLE>
The Company ceased accruing interest on the First Mortgage Notes and the note
payable to affiliate as of the Petition Date. Although classified to
"Liabilities Subject to Compromise," the Company anticipates the continuation of
payments on its capital lease obligations pursuant to a pre-petition Standstill
Agreement, an order entered by the Bankruptcy Court on March 4, 1997, approving
a stipulation for adequate protection and the Restated Second Amended Plan. The
June 28, 1998, condensed consolidated balance sheet does not reflect as
liabilities the total amount of the claims as filed against the Debtors in the
bankruptcy proceedings since a reasonable estimate of additional bankruptcy
claims and pre-petition liabilities and the settlement value of certain
contingent and/or disputed bankruptcy claims could not be made at June 28, 1998.
(4) REORGANIZATION ITEMS
Reorganization Items consisted of the following for the six month periods ended
June 28, 1998 and June 29, 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Settlement of vacation package claims $3,347 $ -
Write-off of debt issuance costs - 11,210
Professional fees 2,000 2,500
Interest earned on accumulated cash during Chapter 11 proceedings (530) (362)
Management retention compensation 233 -
------ -------
$5,050 $13,348
====== =======
</TABLE>
Cash interest earned since the Petition Date totals $1,381,703.
Costs and expenses related to the reorganization of the Company have been
separately classified as Reorganization Items in the condensed consolidated
statements of operations since the Petition Date. Prior to the Petition Date,
such costs and expenses were classified as selling, general and administrative
in the condensed consolidated statement of operations.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains trend information and other forward-looking
statements that involve a number of risks and uncertainties. The actual results
of the Company could differ materially from the Company's historical results of
operations and those discussed in the forward-looking statements.
OVERVIEW
The Company operates an integrated casino, hotel and entertainment facility and
a 1,149 foot, free-standing observation tower in Las Vegas, Nevada. As of July
23, 1998, the operations included 1,873 slot machines, 34 table games, a sports
book, keno lounge, 1,444 hotel rooms and five themed restaurants.
As of the Petition Date, the Bankruptcy Court assumed jurisdiction over the
assets of the Debtors. The Debtors are acting as debtors-in-possession on behalf
of their respective bankrupt estates, and are authorized as such to operate
their business subject to Bankruptcy Court supervision.
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 28, 1998 AND
JUNE 29, 1997
NET LOSS
The Company reported a net loss of $1.6 million ($0.03) per common share for the
1998 second quarter as compared to the 1997 second quarter loss of $2.4 million
or ($0.4) per common share.
REVENUES
Casino revenues of $13.7 million for the 1998 second quarter were $2.1 million
(13%) less than the same period in 1997. Management attributes the decline to an
increased number of casinos implementing similar favorable gambling odds
promotions currently offered by the Company. Management anticipates increased
competition with the opening of several new mega resorts on the Las Vegas Strip
during the next eighteen months. Casino marketing efforts have been directed
toward the development of several promotional events and direct mail programs.
Casino revenues represented 38% and 42% of total gross revenues for the second
quarters of 1998 and 1997, respectively.
Hotel revenues of $6.3 million for the 1998 second quarter were approximately
$.3 million (4%) higher than the same period in 1997. Hotel occupancy was 93.3%
during the 1998 second quarter as compared to 91.0% in 1997. The average rate
per guest room was $51.00 during the 1998 and 1997 second quarters. Hotel
revenues averaged 17% and 16% of total gross revenues during the second quarters
of 1997 and 1998, respectively. Management anticipates increased competition for
hotel room sales during the next eighteen months with the increase of
approximately 20,000 newly constructed hotel rooms in the Las Vegas market.
Tower visitations (including the Top of The World dining) totaled 656,724 during
the 1998 second quarter as compared to 743,917 for the same period in 1997. The
revenue impact of the decline in visitations was offset by an increase in ride
admissions from 232,191 for the 1997 second quarter to 326,371 during 1998. The
increase in ride admissions was primarily due to less down time associated with
ride maintenance.
COSTS AND EXPENSES
Casino operating costs declined approximately 16% from $7.3 million for the 1997
second quarter to $6.1 million for 1998. Approximately $.8 million of the
reduction was due to reduced labor costs associated with reducing the table
games offered from 53 to 34 on April 30, 1998. Management does not anticipate
further significant labor reductions in the near future.
11
<PAGE> 12
Food and beverage operating costs declined approximately 16% from $6.8 million
for the 1997 second quarter to $5.7 million for 1998. Food and beverage payroll
costs declined by approximately $1.0 million during the second quarter of 1998
as compared to the same period for 1997. Management does not anticipate
additional significant reductions in food and beverage labor costs in the near
future.
Selling, general and administrative expenses declined approximately 15% from
$13.8 million in the 1997 second quarter to $11.7 million for the second quarter
of 1998. The cost savings in 1998 were realized through a reduction of $1.0
million in payroll and related expenses, $.2 million in advertising expenses and
approximately $.2 million reduction in bad debt expense. In addition, the 1997
amounts included approximately $.4 million of non-recurring expenses. Management
does not anticipate further significant reductions in selling, general and
administrative expenses in the near future.
OTHER FACTORS IMPACTING EARNINGS
The Company expensed Reorganization Items of $3.7 million or $.06 per common
share and $1.3 million or $.02 per common share during the second quarters of
1998 and 1997, respectively. Included as a Reorganization Item during the 1998
second quarter was $3.3 million related to the net cost of the Settlement
Agreement ("see Note 2 to the Condensed Consolidated Financial Statements
included in this Form 10-Q).
The Company currently employs approximately 1,830 full time equivalents of which
approximately 900 are covered by collective bargaining agreements. The existing
collective bargaining agreements between the Culinary Worker's Union, Local 226
and Bartenders, Local 165 expired June 1, 1997. Since that date, the parties
have agreed to honor the terms and conditions of that contract until such time
as a new agreement is reached. Active negotiations between the parties should
commence once other agreements have been reached with other Las Vegas casinos.
Management does not anticipate any disruption of its business during
negotiations with these unions.
In addition, Management has continued negotiations with Operating Engineers,
Local 501 union. Management does not anticipate any business disruption as a
result of these negotiations.
YEAR 2000
The Company is currently in the process of finalizing its plans regarding the
year 2000 computer systems issues. Based on its preliminary assessment of its
most critical systems, management believes it will be required to upgrade its
existing casino operating system and will most likely replace its current hotel
operating system. Management expects to complete the casino operating system and
hotel operating system upgrades by the end of the first quarter of 1999.
Management continues to assess all other information support systems throughout
the Company, as well as those systems it relies on from its primary vendors.
Although a full assessment regarding all systems is not complete, management
currently estimates that the combined upgrades and purchases of new systems may
total approximately $3.0 million. There can be no assurance based on future
assessment or other changed circumstances that the amount estimated will
represent the actual costs incurred. In addition, the Company's ability to
upgrade its software timely is largely dependent on the performance of its
software vendors.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 28, 1998 AND JUNE
29, 1997
NET LOSS
The Company reported a net loss of $.3 million or ($0.01) per common share for
the period ending June 28, 1998, as compared to a net loss of $17.6 million or
($0.30) per common share for the same period in 1997.
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REVENUES
Casino revenues for the six months ended June 28, 1998, of $28.7 million were
$4.5 million (14% less than the same period in 1997). Management attributes the
decline to an increased number of casinos implementing similar favorable
gambling odds promotions currently offered by the Company. Management
anticipates increased competition with the opening of several new mega resorts
on the Las Vegas Strip during the next year. Casino marketing efforts have also
been directed toward the development of several promotional events and direct
mail programs. Casino revenues represented 39% and 43% of total gross revenues
for the six months ended June 28, 1998 and June 29, 1997, respectively.
Hotel occupancy was 91.9% for the six months ended June 28, 1998, as compared to
89% during the same period in 1997. The average rate per guest room during the
1998 six month period was approximately $50 which was $3 below the same period
in 1997. Management anticipates increased competition for hotel room sales
during the next eighteen months with the increase of approximately 20,000 newly
constructed hotel rooms in the Las Vegas market. Hotel revenues averaged
approximately 17% and 16% of total gross revenues during the six months ended
June 28, 1998 and June 29, 1997, respectively.
Tower visitations (including the Top of The World dinning) totaled 1.3 million
during the six month period ended June 28, 1998, as compared to 1.4 million for
the same period in 1997. The revenue impact of the decline in visitation was
offset by an increase in ride admissions from 398,907 in 1997 to 587,553 in
1998.
COSTS AND EXPENSES
Casino operating expenses declined 12% from $14.7 million for the six months
ended June 29, 1997, to $12.9 million for the six months ended June 28, 1998.
Approximately $1.3 million of this decrease was due to a decline in payroll and
related expenses and the remainder of the savings was related to lower gaming
taxes associated with the decline in revenues.
Food and beverage operating costs declined 15% from $13.6 million for the six
months ended June 29, 1997, to $11.6 million for the same period in 1998. Food
and beverage payroll and related costs declined $1.8 million for the six months
ended June 28, 1998. Management does not anticipate additional significant
reductions in food and beverage labor costs in the near future.
Selling, general and administrative expenses declined approximately 19% from
$28.7 million for the six months ended June 29, 1997, to $23.2 million for the
same period in 1998. The cost savings in 1998 were realized through a reduction
of $2.3 million in payroll and related expenses, $.6 million in advertising
expenses and approximately $.4 million reduction in bad debt expense. In
addition, the 1997 amounts included approximately $1.1 million of non-recurring
items and $.4 million restructuring costs incurred prior to the Petition Date.
Management does not anticipate further significant reductions in selling,
general and administrative expenses in the near future.
Interest expense declined $3.5 million from $4.3 million for the six months
ended June 29, 1997, to $.8 million for the same period in 1998. The Company
ceased accruing interest on its 14.25% First Mortgage Notes since the Petition
Date. Interest expense in 1997 included pre-petition interest related to the
14.25% First Mortgage Notes of $2.3 million and $.5 million of interest related
to the Grand note. In addition, interest related to the Company's capital lease
obligations declined $.5 million during 1998.
The Company expensed Reorganization Items of $5.1 million or $.09 per common
share during the six months ended June 28, 1998. Included as a Reorganization
Items during 1998 was $3.3 million related to the net costs of the Settlement
Agreement (see Note 2 to the Consolidated Financial Statements included in this
Form 10-Q). Reorganization Items totaled $13.3 million or $.23 per common share
during the same period in 1997, which included an $11.2 million write-off of
preferred debt issuance costs.
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LIQUIDITY AND CAPITAL RESOURCES
RESTRUCTURING
On May 15, 1998, the Bankruptcy Court entered an order (the "Confirmation
Order") confirming the Restated Second Amended Plan. The Restated Second Amended
Plan will not become effective until receipt of all regulatory approvals,
including approval from the Nevada State Gaming authorities, which is expected
to occur by September 30, 1998. Among other things, under the Restated Second
Amended Plan, the secured portion of the First Mortgage Notes (estimated at $120
million) will be converted into one hundred percent (100%) of the equity of
reorganized Stratosphere Corporation, and all currently outstanding Common Stock
of the Company and all other existing equity interests (including stock options
and warrants) of the Company will be canceled. The remaining portion of the
First Mortgage Notes claim (approximately $104 million) would be treated as a
general unsecured claim. In addition to the deficiency claim arising from the
First Mortgage Notes, the general unsecured class of claims would include the
balance of the note due Grand Casinos, Inc. (approximately $52.4 million) and
other general unsecured claims. The Restated Second Amended Plan provides for
the general unsecured class of claims to share pro ratably in the distribution
of approximately $6.0 million in full settlement of their related claims. In
addition, the Restated Second Amended Plan assumes that the reorganized
Stratosphere Corporation will continue to make payments pursuant to its capital
lease and operating lease agreements.
On March 27, 1998, the Company became a party to a global settlement agreement
("Settlement Agreement") with the holders of the Vegas World Vacation Packages
("Package Holders"). The Settlement Agreement required the approvals of the
Bankruptcy Court and Nevada State District Court. Upon obtaining the necessary
approvals, the Settlement Agreement became effective on June 23, 1998. Pursuant
to the terms of the Settlement Agreement, the Company will provide room nights,
tower elevations and beverages at the casino bars to the Package Holders
identified in Exhibit A to the Settlement Agreement. The Company estimates the
total cost of providing such services to be approximately $3.3 million. The
Company will receive from Bob Stupak the Deed to the Stupak Center (estimated
fair market value of $350,000), $.4 million of cash and the remaining three
million shares of Common Stock held in the escrow account previously established
by Bob Stupak and will write-off the Stupak receivable of approximately $3.9
million ($800,000 of which was unreserved). The Company has not attributed any
value to the Common Stock received as it will be canceled upon the Restated
Second Amended Plan becoming effective. The net estimated cost of the Settlement
Agreement of $3.3 million is reflected as a Reorganization Item in the Condensed
Consolidated Statement of Operations for the period ended June 28, 1998.
CASH FLOW, WORKING CAPITAL AND CAPITAL EXPENDITURES
The Company had unrestricted cash balances of $22.9 million as of June 28, 1998.
Since the Petition Date, the Company has relied on unrestricted cash balances
and its ability to generate cash flow from operations to fund its working
capital needs.
During the six month period ended June 28, 1998, the Company generated $7.6
million from operating activities. These funds were primarily used to fund
capital expenditures of $.8 million and payments on capital lease obligations of
$4.6 million.
Upon the Restated Second Amended Plan becoming effective, the Company will be
required to provide payment of $6.0 million to general unsecured creditors and
approximately $1.1 million to creditors with priority claims. The Company
estimates that its current level of cash and anticipated funds from operations
will be adequate to fund cash requirements through the term of the bankruptcy
proceedings.
PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Form 10-Q
and other materials filed or to be filed by the Company with the Securities and
Exchange Commission (as well as information included in oral statements or other
written statements made or to be made by the Company) contains statements that
are
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forward-looking, such as statements relating to plans for future expansion,
future construction costs and other business development activities as well as
other capital spending, financing sources and the effects of regulation
(including gaming and tax regulation) and competition. Such forward-looking
information involves important risks and uncertainties that could significantly
affect anticipated results in the future and, accordingly, such results may
differ from those expressed in any forward-looking statements made by or on
behalf of the Company. These risks and uncertainties include, but are not
limited to, those relating to development and construction activities,
dependence on existing management, leverage and debt service (including
sensitivity to fluctuations in interest rates), domestic or global economic
conditions, changes in federal or state tax laws or the administration of such
laws and changes in gaming laws or regulations (including the legalization of
gaming in certain jurisdictions).
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Caesar case motion to dismiss filed by the defendants was granted in part
and denied in part by the United States District Court for the District of
Nevada on April 8, 1998.
See the Company's Annual Report on Form 10-K for the fiscal year ended December
28, 1997, for information regarding other pending legal proceedings.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company defaulted on its First Mortgage Note interest payment obligation due
November 15, 1996, and has not made any subsequently scheduled interest
payments. The Company does not anticipate meeting future payment obligations
during the term of the bankruptcy proceedings. The total principal and interest
accrued as of June 28, 1998, was approximately $223.7 million. Interest has not
been accrued since the Petition Date.
The Company is also in default on its capital lease obligations due to its
inability to meet certain financial covenants. The Company anticipates it will
continue payment on this obligation during the term of the bankruptcy
proceedings. The Company was current on this payment obligation as of June 28,
1998. The balance of principal and accrued interest as of June 28, 1998, was
approximately $13.5 million. Pursuant to the Restated Second Amended Plan
becoming effective, all financial covenants related to the capital lease
obligations will be eliminated.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
99.1 Settlement Agreement
(b) Reports on Form 8-K.
The Company filed the following reports on Form 8-K during the
fiscal quarter ended June 28, 1998:
Date Filed Items Listed
---------- ------------
April 1, 1998 5, 7
May 20, 1998 3, 7
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
STRATOSPHERE CORPORATION
Date: August 7, 1998 By: /s/ Thomas A. Lettero
----------------------------
Name: Thomas A. Lettero
---------------------------
Title: Chief Financial Officer
--------------------------
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EXHIBIT INDEX
STRATOSPHERE CORPORATION
Exhibit
No.
- --------
27 Financial Data Schedule
99.1 Settlement Agreement
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EXHIBIT 99.1
SETTLEMENT AGREEMENT
AND RELEASE
This Settlement Agreement ("SETTLEMENT AGREEMENT") and release is
entered into by and between the parties identified below, and on the dates
identified below, and is intended to resolve the matters and disputes between
the parties identified herein.
I
THE SETTLING PARTIES
STRATOSPHERE CORPORATION ("STRATOSPHERE") is a Delaware corporation and
a DEBTOR and DEBTOR IN Possession in Case Number BK-S-97-20554 GWZ before the
United States Bankruptcy Court for the District of Nevada ( hereinafter referred
to as the "BANKRUPTCY COURT"), doing business as among other names, the
Stratosphere Hotel and Casino, a 1444 room hotel and casino operating within the
City of Las Vegas, County of Clark, State of Nevada, and located at 2000 South
Las Vegas Boulevard, Las Vegas, Nevada 89104. (The hotel and casino referred to
herein is hereinafter referred to as the "SUBJECT PROPERTY".)
STRATOSPHERE GAMING CORP. ("GAMING CORP.") is a Nevada corporation and
a DEBTOR and DEBTOR IN POSSESSION in Case Number BK-S-97-20555 GWZ (collectively
with Case Number BK-S-97-20554 GWZ hereinafter referred to as "BANKRUPTCY
PROCEEDINGS") doing business as, among other names, the Stratosphere Hotel and
Casino. (Hereinafter, Stratosphere and the Stratosphere Gaming Corp. will be
collectively referred to as the "DEBTORS".)
GRAND CASINOS, INC. is a Minnesota corporation, authorized and licensed
to do business within the State of Nevada.
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GRAND CASINOS RESORTS, INC. is a Minnesota corporation. (Hereinafter,
Grand Casinos, Inc. and Grand Casinos Resorts, Inc. will be collectively
referred to as "GRAND".)
LAS VEGAS VACATION CLUB, INC. is a Nevada corporation, authorized and
licensed to do business within the State of Nevada. (Hereinafter referred to as
"LVVC")
BOB STUPAK ENTERPRISES, INC. is a Nevada corporation, authorized and
licensed to do business within the State of Nevada. (Hereinafter referred to as
"BSE".)
BOB STUPAK is an individual residing within the State of Nevada who
previously was the sole proprietor of Vegas World Hotel and Casino and is the
owner of 100% of the stock in BSE and LVCC. (Hereinafter, Las Vegas Vacation
Club, Inc., Bob Stupak Enterprises, Inc., and Bob Stupak will be collectively
referred to as "STUPAK", unless otherwise noted.)
RICHARD DUNCAN is an individual residing in the State of Minnesota and
the Class Representative for the SETTLEMENT CLASS in the BANKRUPTCY ACTION (as
defined below).
THE SETTLEMENT CLASS consists of all persons or entities, including
Richard Duncan, to be certified in the BANKRUPTCY ACTION (defined below) and the
NEVADA STATE ACTION (defined below). This definition of "SETTLEMENT CLASS" is
meant to be interpreted in the broadest possible context and is to include,
without limitation, all persons, approximately 19,000 in number, to whom notice
of the BANKRUPTCY ACTION was previously sent, and any other persons who obtained
at any time, from any source, pre-paid vacations, of any length in duration, at
the SUBJECT PROPERTY and/or the Vegas World Hotel and Casino, including, without
limitation, all those purchasers who
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submitted class proofs of claims in the BANKRUPTCY ACTION identified
hereinbelow.
SHIRINIAN & ROITMAN is a Nevada general partnership, authorized and
doing business within the County of Clark, State of Nevada, licensed to practice
law within the State of Nevada, and attorneys of record for RICHARD DUNCAN and
the SETTLEMENT CLASS.
RUSING & LOPEZ, P.L.L.C. is an Arizona professional limited liability
corporation, and attorneys of record for RICHARD DUNCAN and the SETTLEMENT
CLASS. (Hereinafter Shirinian & Roitman and Rusing & Lopez will be collectively
referred to as the "ATTORNEYS REPRESENTING THE SETTLEMENT CLASS".)
Andrew S. Blumen, Esq., Thomas Lettero, Thomas Bell, Robert Maheu,
David Wirshing, and Russell Lederman, individually, are current or former
officers, directors or professionals of Debtors (collectively, the "DEBTORS
INDIVIDUALS").
II
THE DISPUTES
By this SETTLEMENT AGREEMENT, the parties intend on settling and
resolving all disputes between the parties in the following actions:
1. That bankruptcy adversarial proceeding known as "Richard Duncan,
Individually and on behalf of all other similarly situated Claimants vs.
Stratosphere Corporation and Stratosphere Gaming Corporation," United States
Bankruptcy Court, District of Nevada, Adversarial No. 982008 ("BANKRUPTCY
ACTION").
2. That Nevada State court action known as "Richard Duncan,
individually and on behalf of all others similarly situated vs. Bob and Jane Doe
Stupak, Bob Stupak Enterprises, Inc., Las Vegas Vacation Club, Inc., Grand
Casinos, Inc., Grand Casinos Resorts, Inc., State of Nevada, County of Clark,
Eighth Judicial District, Case Number
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A370127. ( The "NEVADA STATE ACTION" or together with THE BANKRUPTCY ACTION,
the "Actions".)
3. That interpleader action commenced in the BANKRUPTCY PROCEEDINGS
entitled "The Bank of New York, Plaintiff vs. Stratosphere Corporation, a
Delaware Corporation; Bob Stupak dba Vegas World Casino and Hotel; and Does 1-5,
inclusive, Defendants," and the cross claim Stratosphere Corporation v. Bob
Stupak dba Vegas World Casino & Hotel", Adversary No. 972286 ("INTERPLEADER
ACTION").
4. That certain Motion To Authorize; (1) Payment of Proof of Claim; (2)
Expenditure Outside The Ordinary Course of Business; and (3) To Deposit Monies
in Court Registry filed in the BANKRUPTCY PROCEEDINGS on February 10, 1998.
("COMPEL MOTION") granted by the BANKRUPTCY COURT on March 19, 1998 ("COMPEL
MOTION ORDER") .
5. That certain complaint to compel turnover of property entitled
"Stratosphere Corporation a Delaware Corporation, Plaintiff vs. Robert Stupak,
an individual, Defendant" filed in the BANKRUPTCY PROCEEDINGS as Adversary No.
982041 on February 6, 1998. ("TURNOVER ACTION").
III
PROCESS FOR APPROVAL BY NEVADA STATE COURT
AND BANKRUPTCY COURT OF PROPOSED SETTLEMENT
The parties to this SETTLEMENT AGREEMENT agree to cooperate in seeking
the establishment of the procedure satisfactory to all parties to this
SETTLEMENT AGREEMENT to secure the complete and final dismissal, with prejudice,
of the ACTIONS in accordance with the terms of this Settlement Agreement. The
parties shall further join in taking such steps
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as may be necessary, or as may be requested by either the BANKRUPTCY COURT or
the Nevada State Court hearing the NEVADA STATE ACTION (hereinafter the "NEVADA
STATE COURT"), and otherwise use their best efforts to effectuate the above, and
the parties therefore agree as follows:
1. GRAND, STUPAK, and the ATTORNEYS REPRESENTING THE SETTLEMENT CLASS
have convened a Nevada Rule of Civil Procedure 16(c) conference in the NEVADA
STATE ACTION to discuss with the NEVADA STATE COURT the process described in
this SETTLEMENT AGREEMENT for settling the NEVADA STATE COURT ACTION.
2. The general terms of this SETTLEMENT AGREEMENT having been deemed
acceptable by the NEVADA STATE COURT, GRAND, STUPAK, and the ATTORNEYS
REPRESENTING THE SETTLEMENT CLASS will, within 5 (five) days of execution of
this SETTLEMENT AGREEMENT, execute the following stipulations in a form
acceptable to the NEVADA STATE COURT:
a. Certification, for settlement purposes only, of a settlement
class in the NEVADA STATE ACTION under Nev. R. Civ. P.26(b)(3)
conforming to the definition of SETTLEMENT CLASS in Article I of
this SETTLEMENT AGREEMENT. This contemplated stipulation is
conditional and shall be null and void in the event this
SETTLEMENT AGREEMENT is not approved by both the NEVADA STATE
COURT and the BANKRUPTCY COURT pursuant to the provisions of
Article III, Paragraph 4. This stipulation to the certification
of a SETTLEMENT CLASS shall also be null and void if more than
two hundred and fifty (250) potential SETTLEMENT CLASS members
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opt out of the SETTLEMENT CLASS certified in the NEVADA STATE
ACTION. In the event that certification becomes null and void due
to the provisions of this paragraph, GRAND and STUPAK will be
deemed to have preserved all their rights to challenge any
further attempt to certify a class in the NEVADA STATE ACTION.
b. Limited stay of the NEVADA STATE ACTION and the tolling of all
discovery and other deadlines. Any party hereto may act to lift
the stay after ten (10) days of providing written notice to the
other parties that settlement efforts have failed.
c. Referral by the NEVADA STATE COURT to the BANKRUPTCY COURT of the
initial determination of the following with respect to the NEVADA
STATE ACTION.
(1) pre-approval of the settlement contemplated by this SETTLEMENT
AGREEMENT.
(2) adequacy and method of notice to potential members of the
SETTLEMENT CLASS in the NEVADA STATE ACTION.
(3) allowing the BANKRUPTCY COURT to conduct a fairness hearing
regarding the settlement contemplated by this SETTLEMENT
AGREEMENT and a determination of the fee application by the
ATTORNEYS REPRESENTING THE SETTLEMENT CLASS in the BANKRUPTCY
PROCEEDINGS and NEVADA STATE ACTION together with the creation by
the BANKRUPTCY COURT of an Order and Findings of Fact with
respect to the issues identified in this paragraph.
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3. DEBTORS and the ATTORNEYS REPRESENTING THE SETTLEMENT CLASS agree to
expand the definition of the existing certified class in the BANKRUPTCY ACTION
to correspond with the definition of the SETTLEMENT CLASS in Article I of this
SETTLEMENT AGREEMENT and to provide identical notice to all potential members of
the SETTLEMENT CLASS in the BANKRUPTCY ACTION as is sent to potential members of
the SETTLEMENT CLASS in the NEVADA STATE ACTION including the right to opt out
of the SETTLEMENT CLASS and to obtain an Order of the BANKRUPTCY Court
("BANKRUPTCY COURT CERTIFICATION ORDER") to that effect. DEBTORS and the
ATTORNEYS REPRESENTING THE CLASS further agree to promptly seek an entry of a
stipulated Order staying and tolling all discovery and other deadlines in the
BANKRUPTCY ACTION pending the BANKRUPTCY COURT'S final approval hearing.
4. GRAND, STUPAK and the ATTORNEYS REPRESENTING THE SETTLEMENT CLASS
agree that in addition to the conditions stated in Article IV, Paragraph 8 and
Article V, the conditions precedent to the settlement contemplated by this
SETTLEMENT AGREEMENT becoming effective are; (a) the issuance of a final
non-appealable Order (the "STATE APPROVAL ORDER") by the NEVADA STATE COURT
approving this settlement, with respect to the NEVADA STATE ACTION, and either
adopting the BANKRUPTCY COURT'S ORDER and findings of fact pursuant to Article
III, Paragraph 2.c. of this SETTLEMENT AGREEMENT, or entering a substantially
similar order and findings of its own acceptable to each of the parties hereto;
(b) the BANKRUPTCY COURT ORDER (the "RULE 7023 ORDER") approving this SETTLEMENT
AGREEMENT pursuant to Rule 7023 becoming final and non-appealable; (c) approval
by the BANKRUPTCY COURT of this SETTLEMENT AGREEMENT as a settlement
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and compromise pursuant to Bankruptcy Rule 9019 to be evidenced by an Order (the
"9019 ORDER") and such 9019 ORDER becoming final and non-appealable; and (d) the
absence of any collateral attack challenging this SETTLEMENT AGREEMENT due to
the method of providing notice to the potential SETTLEMENT CLASS. Forty-eight
(48) hours after all such conditions precedent have been satisfied, or by close
of the next business day, whichever is later, shall be the "EFFECTIVE DATE" as
and for GRAND, its affiliates, officers, directors, agents, employees, (all of
the foregoing, both individually and in their corporate capacity), STUPAK and
the SETTLEMENT CLASS.
5. STUPAK, DEBTORS and THE ATTORNEYS REPRESENTING THE SETTLEMENT CLASS
agree that in addition to the conditions stated in Article V. A, B & C (2), the
conditions precedent to the settlement contemplated by this SETTLEMENT AGREEMENT
becoming effective are (a) the RULE 7023 ORDER approving the SETTLEMENT
AGREEMENT pursuant to RULE 7023 becoming final and non-appealable; and (b)
approval by the BANKRUPTCY COURT of this SETTLEMENT AGREEMENT as a settlement
and compromise pursuant to BANKRUPTCY RULE 9019 to be evidenced by the final and
non-appealable 9019 ORDER. Forty-eight hours after all such conditions are
satisfied, or by close of the next business day, whichever is later, shall be
the "EFFECTIVE DATE" as and for DEBTOR, DEBTORS INDIVIDUALS, their affiliates,
agents, officers, directors and employees, (all of the foregoing, both
individually and in their corporate capacity), STUPAK and the SETTLEMENT CLASS.
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IV
TERMS OF THE SETTLEMENT WITH
RICHARD DUNCAN AND THE CLASS
RICHARD DUNCAN, individually, and on behalf of and as a member of the
SETTLEMENT CLASS, the SETTLEMENT CLASS, and their agents, consultants,
successors, experts, heirs, administrators, executors, and assigns, fully
release and forever discharge, DEBTORS AND REORGANIZED DEBTORS, GRAND, STUPAK,
and their respective affiliates, agents, directors, employees, officers, and
subsidiaries both individually and in their corporate capacities of any and all
liability, claims, demands, actions, or causes of action, of whatever kind or
nature, arising out of or in any way connected with the ACTIONS, for and in
consideration of the following:
1. DEBTORS and REORGANIZED DEBTORS, hereby agree, to provide RICHARD
DUNCAN and the SETTLEMENT CLASS for use at the SUBJECT PROPERTY, now and in the
future, under whatever name the SUBJECT PROPERTY shall be known by, or by
whomever the SUBJECT PROPERTY shall be owned, managed or controlled by, use and
enjoyment of the unredeemed hotel Room Nights, pre-paid by the SETTLEMENT CLASS,
and previously purchased as part of those STUPAK marketing programs known as
"The Vacation Club", "The Stratosphere Club" and "The Stratosphere Tower Club",
or otherwise, and purchased from STUPAK or his or its affiliates or agents.
These unredeemed Room Nights as reflected in the records of STRATOSPHERE and
STUPAK and as set forth in Exhibit A attached hereto, shall be provided without
further costs or annual dues to the SETTLEMENT CLASS. Exhibit A shall include
the total number of room nights available to each and every member of the
SETTLEMENT CLASS to whom Class notice was previously sent, in the
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BANKRUPTCY ACTION, regardless of whether that member still has unredeemed
vacation package benefits available or not. The actual number of Room Nights
shall be ascertained prior to this SETTLEMENT AGREEMENT being approved by the
BANKRUPTCY COURT, and shall be set forth in Exhibit A in a form which provides
sufficient data to determine the individual holder, the number of Room Nights
the holder is entitled to, and any restrictions or limitations the SETTLEMENT
CLASS MEMBERS were subject to when they originally purchased these Room Nights.
(Hereinafter, this portion of the Settlement Agreement shall be referred to as
the "ROOM NIGHTS" portion of the settlement).
Usage of the Room Nights due and owing the SETTLEMENT CLASS shall be
made based upon room availability at the SUBJECT PROPERTY. DEBTORS and their
successors and/or assigns agree to use their best efforts to allow the
SETTLEMENT CLASS members to utilize their ROOM NIGHTS on the dates requested by
members of the SETTLEMENT CLASS, subject to reasonable business judgment, any
use restrictions existing on the subject packages as originally sold, and
excluding all major holiday weekends, Super Bowl weekend, and the COMDEX and CES
convention weeks. In no way, however, shall any member of the SETTLEMENT CLASS
be deprived of the ultimate use of his/her ROOM NIGHTS as set forth in Exhibit
A, even if this requires a reasonable extension of any relevant time period to
utilize ROOM NIGHTS for any individual member of the SETTLEMENT CLASS' ROOM
NIGHTS so long as he or she makes a valid request within the permitted time
period for those remaining ROOM NIGHTS which request could not be satisfied by
DEBTORS within the allowed time period.
2. While DEBTORS and REORGANIZED DEBTORS hereby agree that while
RICHARD
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DUNCAN and the SETTLEMENT Class are in use and enjoyment of the ROOM
NIGHTS at the SUBJECT PROPERTY to be provided as part of this Settlement
Agreement, DEBTORS and REORGANIZED DEBTORS agree to provide to RICHARD DUNCAN
and the SETTLEMENT Class, without cost or monetary obligation, unlimited free
alcoholic and/or non-alcoholic beverages, of any kind provided in the normal
course, which are served at any bar then operated and located in the casino.
(Hereinafter, this portion of the Settlement Agreement will be referred to as
the "DRINKS").
3. While DEBTORS and REORGANIZED DEBTORS hereby agree that while
RICHARD DUNCAN and the SETTLEMENT CLASS are in use and enjoyment of the ROOM
NIGHTS at the SUBJECT PROPERTY to be provided as a part of this Settlement
Agreement, DEBTORS and REORGANIZED DEBTORS agree to provide to each member of
the SETTLEMENT CLASS, without cost or monetary obligation, with unlimited free
access by that member of the SETTLEMENT CLASS via the elevators to the
"Stratosphere Tower", or whatever name that tower of approximately one hundred
and ten stories located upon the Subject Property is hereafter referred to as
during that SETTLEMENT CLASS member's stay. (Hereinafter, this portion of the
Settlement Agreement will be referred to as the "ELEVATIONS");
4. The parties agree to the following timetable for disbursements of
the total cash proceeds of the settlement (the "Cash Proceeds"):
a. In the event no appeals or collateral attacks are filed challenging
the State Approval Order, the 9019 Order , the 7023 order, or the method of
providing notice to the potential Settlement Class, the disbursement of the Cash
Proceeds shall occur as follows:
11
<PAGE> 12
upon the STATE APPROVAL ORDER becoming final (thirty [30] days after receipt of
written notice of entry of the STATE APPROVAL ORDER with no appeal filed), the
9019 ORDER becoming final (eleven [11] days after the 9019 Order is docketed
with no appeal filed) and the RULE 7023 Order becoming final (eleven [11] days
after the RULE 7023 ORDER is docketed with no appeal filed), together with
receipt by counsel for GRAND and STUPAK of the stipulation of dismissal, with
prejudice, of the NEVADA STATE ACTION (in the form attached hereto as Exhibit B)
and signed by the ATTORNEYS REPRESENTING THE SETTLEMENT CLASS, and upon the
release described in this Article IV and the GRAND/STUPAK RELEASE (as defined in
Article V, Paragraph C below) becoming fully effective, GRAND shall, within
forty-eight (48) hours thereof, deposit by wire transfer the sum of $1,150,000
(One Million One Hundred Fifty Thousand Dollars), in cash, and STUPAK shall,
within forty-eight (48) hours thereof, or after May 1, 1998, whichever is later,
deposit by wire transfer the sum of $1,150,000 (One Million One Hundred Thousand
Dollars), in cash to the Shirinian & Roitman Class Action Trust Account. DEBTORS
shall instruct the escrow to, within five (5) business days of the Effective
Date as defined in Article III, Paragraph 5, wire transfer the sum of $700,000
(Seven Hundred Thousand Dollars), in cash from the funds deposited with the
Bankruptcy Court registry in the Interpleader Action, into the "Shirinian &
Roitman Class Action Trust Account." The ATTORNEYS REPRESENTING THE SETTLEMENT
CLASS SHALL PROVIDE the account number in writing to Grand, Stupak and the
Debtors and confirm deposit of each parties' contribution of the same, in
writing by same day facsimile and by copy of deposit receipt, to all counsel for
all parties to this SETTLEMENT AGREEMENT.
12
<PAGE> 13
b. In the event an appeal is filed in either the BANKRUPTCY ACTION
and/or the NEVADA STATE ACTION, GRAND, STUPAK, and the DEBTORS or REORGANIZED
DEBTORS shall deposit by wire transfer within 48 hours of the filing of the
notice of appeal, or 30 days after STATE COURT APPROVAL, whichever is later,
there above-stated respective contributions ($3,000,000 in total - the CASH
PROCEEDS) into a segregated, interest-bearing, trust account to be opened with
Nevada Title, Nevada Title acting as trustee over said funds. The ATTORNEYS
REPRESENTING THE SETTLEMENT CLASS shall be responsible for opening said interest
bearing trust account upon notice of appeal being filed, and notifying GRAND,
STUPAK and the DEBTORS or REORGANIZED DEBTORS of the account number of said
interest-bearing trust account. In the event that any Appeals Court overturns
and/or modifies the STATE APPROVAL ORDER, the 9019 ORDER and/or the 7023 ORDER,
and said Appeals Court order becomes final and nonappealable, the balance of the
trust account shall be paid, within forty-eight (48) hours by wire transfer
deposit, to the designated accounts of GRAND, STUPAK and the DEBTORS or
REORGANIZED DEBTORS in an amount equal to the respective contributions of GRAND,
STUPAK, and the DEBTORS or REORGANIZED DEBTORS. In the event of denial or
dismissal of all appeals of the STATE APPROVAL ORDER, the 9019 ORDER, and the
7023 ORDER, Nevada Title will be directed to deposit, within 48 hours by wire
transfer, the balance of the trust account to the Shirinian and Roitman Class
Action Trust Account for distribution by the ATTORNEYS REPRESENTING THE
SETTLEMENT CLASS as directed by the BANKRUPTCY COURT and/or the NEVADA STATE
COURT.
It is understood and agreed the ATTORNEYS REPRESENTING THE SETTLEMENT
CLASS will
13
<PAGE> 14
apply to the BANKRUPTCY COURT for payment of their fees and costs from the
proceeds of the settlement described above at the time of application for the
RULE 7023 ORDER. It is further understood the BANKRUPTCY COURT'S Order with
respect to such fees is subject to review and approval by the NEVADA STATE COURT
as provided in Article III, Paragraph 4 above. The ATTORNEYS REPRESENTING THE
SETTLEMENT CLASS hereby agree to limit their recovery to an amount not to exceed
the total cash proceeds of the settlement, (the "CASH PROCEEDS") in the amount
of $3,000,000 (Three Million Dollars) and agree not to seek recovery of any
additional attorneys' fees and costs in excess of the CASH PROCEEDS, or to claim
any right to recover any portion, share or percentage of the ROOM NIGHTS, DRINKS
AND/OR ELEVATIONS portions of this SETTLEMENT AGREEMENT, or condition final
approval of this SETTLEMENT AGREEMENT upon approval of said attorneys' fees.
GRAND, STUPAK, and DEBTORS further agree not to object to the application by the
ATTORNEYS REPRESENTING THE SETTLEMENT CLASS for recovery of their attorneys'
fees and costs to the extent the application conforms to this SETTLEMENT
AGREEMENT.
5. The costs incurred in administrating the ROOM NIGHTS, DRINKS and
ELEVATIONS portion of this SETTLEMENT AGREEMENT, shall be borne solely by the
then owner of the SUBJECT PROPERTY, whether DEBTORS or otherwise. It is
understood that DEBTORS are only responsible to provide CLASS MEMBERS the
benefits set forth in this SETTLEMENT AGREEMENT, and as set forth in detail in
Exhibit A, and are not responsible for any dispute resolution, including but not
limited to CLASS MEMBER disputes claiming more ROOM NIGHTS than set forth in
Exhibit A or requests for refunds. It is further understood by all parties
hereto that in no event will Grand have any obligations whatsoever for ROOM
14
<PAGE> 15
NIGHTS, DRINKS or ELEVATIONS.
6. Honoring of the ROOM NIGHTS, DRINKS and ELEVATIONS portion of the
settlement by the DEBTORS or REORGANIZED DEBTORS, subject to Article V,
Paragraphs A and B, shall begin no later than thirty (30) days after the 9019
ORDER and the RULE 7023 ORDER becoming final and non-appealable (whichever is
later), and shall continue until fully satisfied on the terms, conditions,
benefits and limitations as RICHARD DUNCAN and the SETTLEMENT CLASS were subject
to by contract relative to the ROOM NIGHTS, DRINKS and ELEVATIONS portion of the
settlement at the time originally purchased, and as further described and/or
limited hereinabove. Any time limitations found in any contract for purchase by
RICHARD DUNCAN and the SETTLEMENT CLASS of pre-paid vacations from STUPAK, or
otherwise, are hereby, however, deemed extended by a time period equal to the
period from the original "cancellation" of the pre-paid vacation packages
(January 13, 1997) to the date upon which the DEBTORS and REORGANIZED DEBTORS
begin honoring the ROOM NIGHTS, DRINKS, and ELEVATIONS portions of the
SETTLEMENT AGREEMENT. In no way however shall this extension be seen in any way
as a limitation on the right of any individual member of the SETTLEMENT CLASS to
utilize his ROOM NIGHTS, as such right is described in Article IV, Paragraph 1
of this SETTLEMENT AGREEMENT.
7. This SETTLEMENT AGREEMENT, in its entirety, and all Court Orders
approving it, shall be binding upon all current and subsequent owners of the
SUBJECT PROPERTY, their successors in interest, and/or assigns. Debtors shall
cause a Memorandum of this SETTLEMENT AGREEMENT to be recorded upon the SUBJECT
PROPERTY as provided in the Escrow Instructions attached as Exhibit C hereto, so
as to provide notice to all of the
15
<PAGE> 16
property and contract rights of the SETTLEMENT CLASS in the SUBJECT PROPERTY
created by this Settlement Agreement. This Agreement shall remain in effect
until the earlier of the use by the SETTLEMENT CLASS of all Room Nights to which
the SETTLEMENT CLASS is entitled or January 1, 2009. It is understood by the
parties that the provisions of this paragraph have no force or effect with
respect to the releases by the SETTLEMENT CLASS of GRAND and STUPAK following
their compliance with Article IV, Paragraph 4 of this SETTLEMENT AGREEMENT.
8. This SETTLEMENT AGREEMENT is conditioned upon approval of this
SETTLEMENT AGREEMENT, in its entirety, by the BANKRUPTCY COURT with regard to
DEBTORS, DEBTORS INDIVIDUALS, STUPAK and the SETTLEMENT CLASS, and with regard
to GRAND, STUPAK and the SETTLEMENT CLASS, the approval of the BANKRUPTCY COURT
and the NEVADA STATE COURT as provided in Article III, Paragraph 4 herein. As it
relates to GRAND and STUPAK, this SETTLEMENT AGREEMENT and the certification of
the SETTLEMENT CLASS in the NEVADA STATE ACTION shall not be effective in the
event more than two hundred and fifty (250) potential class members opt out of
the SETTLEMENT CLASS to be certified in the NEVADA STATE COURT, absent waiver of
this condition by GRAND and STUPAK.
V.
TERMS OF THE SETTLEMENT BETWEEN STUPAK,
STRATOSPHERE AND GRAND
A. The parties to this SETTLEMENT AGREEMENT agree that the following
conditions precedent for the settlement set forth in Article IV hereof, to
be effective, must be satisfied within five days of execution of this
SETTLEMENT AGREEMENT:
16
<PAGE> 17
1. STUPAK AND DEBTORS will open an Escrow with Nevada Title Company,
3800 Howard Hughes Parkway, Las Vegas, Nevada 89109 ("Escrow Agent"), and
deposit an executed copy of this SETTLEMENT AGREEMENT and Escrow instructions in
the form attached hereto as Exhibit C with the Escrow Agent.
2. STUPAK and DEBTORS will execute and deliver to Escrow Agent a
stipulated Order in the form attached hereto as Exhibit D which shall be lodged
in the Interpleader Action upon the entry of the 9019 ORDER directing that upon
entry of the Interpleader Order (i) all moneys, funds, and STRATOSPHERE stock
(held by the Bank of New York) be immediately deposited with the BANKRUPTCY
COURT registry; and (ii) the Bank of New York shall receive from such moneys the
immediate payment of attorneys' fees and costs in the amount of $2,021.03 and
$1,250.00 in Escrow Fees. Upon the Effective Date as provided for in Article
III, Paragraph 5, the balance of all such moneys, funds and STRATOSPHERE stock
less the $700,000 paid directly to the Shirinian & Roitman Class Action Trust
Account be released from the registry to Stratosphere and the Interpleader
Action shall be dismissed.
3. STUPAK will execute and deliver to the Escrow Agent a quitclaim
deed, transferring in fee simple, and free and clear of any and all deeds of
trust, liens (except taxes not yet due and payable) and/or mortgages to
STRATOSPHERE that real property in the County of Clark, State of Nevada,
commonly identified as the property upon which the "Chester Stupak Center," is
located (legally described in Exhibit E attached hereto) along with all
appurtenances, fixtures and improvements thereon. DEBTORS hereby agree that so
long as DEBTORS own the Chester Stupak Center, DEBTORS shall permit the City of
Las
17
<PAGE> 18
Vegas to continue to use the Chester Stupak Center without payment of rent
consistent with prior and current uses.
4. In partial consideration of the release by STUPAK to DEBTORS of the
stock on deposit with Bank of New York, as well as other consideration provided
by STUPAK, DEBTORS and DEBTORS INDIVIDUALS to each other, DEBTORS, DEBTORS
INDIVIDUALS and STUPAK will execute and enter into, and deliver to the Escrow
Agent, a mutual release attached hereto as Exhibit E ("STUPAK/DEBTORS RELEASE")
of any and all claims any of these parties may have against each other, or
against any of their current or former affiliates, officers, directors, agents
and employees individually or in their corporate capacity, whether related to
the ACTIONS, or otherwise, any adversarial claims, pending or contemplated or
arising out of the ACTIONS or conduct, occurring prior to the date of this
SETTLEMENT AGREEMENT. The failure of any individual to sign this release shall
have no effect on its enforceability and validity with regard to the release as
to all other signing parties. In addition to other considerations set forth in
this agreement, the DEBTORS INDIVIDUALS release of STUPAK shall be deemed
adequate consideration for STUPAK'S release of the DEBTORS INDIVIDUALS.
5. DEBTORS will prepare and file a motion to approve this SETTLEMENT
AGREEMENT with the BANKRUPTCY COURT pursuant to Bankruptcy Rule 9019.
B. STUPAK and DEBTORS agree that upon the Effective Date as defined in Article
III, Paragraph 5 (unless waived by DEBTORS) the following will take place:
1. The four individual proofs of claims filed by STUPAK in the
BANKRUPTCY PROCEEDINGS for unsecured claims in the amount of One Hundred and
Twelve Million
18
<PAGE> 19
Dollars ($112,000,000), Three Hundred Thousand Dollars ($300,000), Three Hundred
and Fifty Thousand Dollars ($350,000), and Fifteen Million Dollars
($15,000,000), totaling $127,650,000 (One Hundred Twenty Seven Million, Six
Hundred Fifty Thousand Dollars), will be deemed withdrawn with prejudice and of
no further force and effect.
2. In partial consideration of receipt of the cash on deposit with the
Bank of New York, and all other considerations set forth in this SETTLEMENT
AGREEMENT, DEBTORS and/or their successors-in-interest, affiliates, or assigns,
jointly and severally, will be obligated to provide the ROOM NIGHTS, ELEVATIONS,
and DRINK portions of the settlement as set forth in Article IV of this
SETTLEMENT AGREEMENT;
3. The Escrow Agent shall: (i) record and deliver to STRATOSPHERE the
grant deed transferring the STUPAK CENTER to STRATOSPHERE; (ii) deliver to
DEBTORS the INTERPLEADER Order; and (iii) deliver to DEBTORS, DEBTORS
INDIVIDUALLY AND STUPAK the DEBTOR/STUPAK RELEASE; and
4. The TURNOVER ACTION shall be dismissed with prejudice and the COMPEL
MOTION ORDER deemed of no further force and effect and all moneys and other
assets on deposit in the BANKRUPTCY COURT registry shall be released to DEBTORS
with the exception of the $700,000 to be paid directly to the Shirinian &
Roitman Class Action Trust Account.
C. The parties to the SETTLEMENT AGREEMENT agree that the following conditions
precedent must be satisfied for the settlement set forth in Article IV, hereof
to be effective:
19
<PAGE> 20
Within five days of execution of this SETTLEMENT AGREEMENT, GRAND and
STUPAK and certain individuals will execute and deliver to the Escrow Agent, a
mutual release in the form attached hereto as Exhibit F of any and all claims
any party may have against each other, or any of their current or former
affiliates, officers, directors, agents and employees individually or in their
corporate capacity whether related to the ACTIONS, or otherwise (the
"GRAND/STUPAK RELEASE"). The GRAND/STUPAK RELEASE will become fully effective
once the STATE APPROVAL ORDER becomes a final non-appealable order as described
in Article IV, Paragraph 4 above. The failure of any individual to sign this
release shall have no effect on its enforceability and validity with regard to
the release as to all other signing parties.
2. Within five days of execution of this SETTLEMENT AGREEMENT, GRAND,
STUPAK, certain other individuals and certain of the DEBTORS INDIVIDUALS will
execute and enter into a Joint Defense Agreement (the "JOINT DEFENSE AGREEMENT")
related to the certain securities litigation commonly referred to as Master File
No. CV-S-96-00708PMP (PLH) in a form acceptable to the parties thereto. The
JOINT DEFENSE AGREEMENT will be effective upon its execution. Notwithstanding
the foregoing, the parties to this SETTLEMENT AGREEMENT understand that a breach
of the Joint Defense Agreement shall not effect the obligations of the Parties
under this SETTLEMENT AGREEMENT.
It is understood by the parties that this is a compromised settlement
of disputed claims, and that current and contemporaneous value has been given to
each other by all parties to this SETTLEMENT AGREEMENT. It is further understood
that the above-mentioned
20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-END> JUN-28-1998
<CASH> 22,911,697
<SECURITIES> 0
<RECEIVABLES> 2,998,569
<ALLOWANCES> (486,336)
<INVENTORY> 2,721,478
<CURRENT-ASSETS> 5,987,030
<PP&E> 141,400,107
<DEPRECIATION> 22,571,444
<TOTAL-ASSETS> 154,392,349
<CURRENT-LIABILITIES> 16,960,189
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0
0
<COMMON> 583,931
<OTHER-SE> (157,884,065)
<TOTAL-LIABILITY-AND-EQUITY> 154,392,349
<SALES> 67,144,187
<TOTAL-REVENUES> 73,439,877
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